PGW - PGG Wrightson

[Balance]

Hmmm, I don't recall Agria ever putting their PGW stake up for sale.

Or are you referring to the 'capital review' initiated by PGW to look at the capital needs of the company going forwards? -That was where the Danish DLF Seeds offer for the PGW seed business came from. So your argument Balance is that the 'capital review' was really a sham sales process in disguise?

SNOOPY

It was certainly well known in investment banking cycle that Agria was looking for bids for its stake in PGW. The article below affirms what the informed market knew :

https://www.afr.com/business/where-t...0190310-h1c7ag

Excerpt : "Elders and its adviser Macquarie had cast an eye over Ruralco along with about six other potential acquisition targets in the past 18 months, including New Zealand's PGG Wrightson, before Denmark-based DFL stepped up with a $NZ421 million ($406.5 million) offer for the seeds business." "We didn't make an offer for PGG because there was a 14 times earnings offer from DFL and it's not dissimilar to this situation [Nutrien and Ruralco]," Mr Allison said. "We are not interested in destroying shareholder value." What the interest in PGG Wrightson did show was Elders' appetite to diversify.

[Snoopy]

It was certainly well known in investment banking cycle that Agria was looking for bids for its stake in PGW. The article below affirms what the informed market knew :

https://www.afr.com/business/where-t...0190310-h1c7ag

Excerpt : "Elders and its adviser Macquarie had cast an eye over Ruralco along with about six other potential acquisition targets in the past 18 months, including New Zealand's PGG Wrightson, before Denmark-based DFL stepped up with a $NZ421 million ($406.5 million) offer for the seeds business." "We didn't make an offer for PGG because there was a 14 times earnings offer from DFL and it's not dissimilar to this situation [Nutrien and Ruralco]," Mr Allison said. "We are not interested in destroying shareholder value." "What the interest in PGG Wrightson did show was Elders' appetite to diversify."

Thanks for the reference Balance.

What has been obvious for the last few years is that while PGW was making money, the leveraged buyout vehicle for PGW, Agria, was losing money. Yes Agria has had some peripheral write-downs unrelated to its PGW stake. But largely Agria has been losing money, because the dividends received from PGW have not covered Agria's interest bills. We also know that Agria could not partially sell down their stake, because that would require the share price movements of PGW to be consolidated within the Agria accounts. And that means large capital write downs at Agria!

The forced sell down of the Agria stake in PGW to below 50% means that the 'capital loss' chicken has come home to roost. Agria's 'get out of jail' card is the sale of the seed division and an associated large return of capital to all shareholders. Hopefully the 'PGW Rural Rump' share price of what is left will rally so that the market values Agria's total investment in PGW higher than what they paid for it. But this potential share price rally is still an 'if'.

In this sense it is obvious that if Agria were to get a good offer for their PGW stake they would be foolish not to consider selling - to appease their lenders if for no other reason.

However, notwithstanding any inside information you may have Balance, that validates your view: That article says that Elders have been looking various growth options over the last 18 months, and that takes us back to 2017. However, it does not say that each and every growth option on the table have been under the microscope for 18 months. The article listed three preferred growth strategies, none of which involved buying into PGW.

"The first thing is we have to buy well, so we're looking for distressed assets," (Mr Allison of Elders) said.

PGW was not a distressed asset. The share price was too high for an Elders buyout to be 'value accretive'.

"The final criteria, although it did not prevent Elders looking closely at PGG Wrightson, is to buy in Australia, where Elders has a bank of tax credits."

While the article does not rule out Elders being interested in PGW since 2017, it is also consistent with Elder's interest in PGW coming much later (second half of 2018) once the other preferred growth opportunities within Australia had started to fall through.

SNOOPY

[Snoopy]

So Agria settled claims with the United States Securities and Exchange Commission over allegations.

"It resulted in the company paying $US3 million ($NZ4.4m), and Mr Lai $US400,000, ($NZ590,000) although there were no admissions of liability."

So no admission of fraudulent accounting and market manipulation by Agria and Alan Lai. Yet the OIO in New Zealand has 'forced Agria to reduce its stake' in PGW from 50.2% to 46.6% (on what grounds?).

"The settlement also provided for penalty proceedings to be filed in the High Court, .."

'Penalty proceedings' for doing what exactly? What will the charge be?

Agria selling is no big surprise indeed as the company has been in the hands of the bankers for quite a while - reason why Agria put up its stake in PGW for sale in 2017 in the first place.

Looks to me like Agria has sold the $8m worth of PGW's stake to cover various 'operating' expenses (fines, legal, admin, fees etc) which is why it needs the permission of the banks.

Agria will be hoping like mad that the approval comes through so that Cushing does not get to settle the $8m purchase?

17m shares sold at 49c - 0.75c = 48.25c (including dividend foregone) give a cash inflow into Agria of $NZ8.2m. Total US fines add to $NZ4.99m. That was back in December 2018 though. The Cushing share sale would more than cover this bill. Yet, I would have thought to get the US authorities off the back of Agria, any such fines would already have been settled? Would the US Enforcement Authorities really wait 3-4 months to be paid, and be silent about doing that?

Back in NZ, have those 'penalty proceedings' been filed in the high court yet?

I had previously assumed that it was the Cushings that initiated the $17m share sale to themselves. But if it was Agria that initiated the sale, without even knowing if the banks would let them sell, then the CASH position of Agria/ Alan Lai must have become desperate!

SNOOPY

[percy]

Board changes.
Very positive new board members and new chair.

[Snoopy]

Board changes.
Very positive new board members and new chair.

Interesting to see that new chairman Rodger Finlay is deputy chair of Rural Equities Limited, controlled by the Cushings AND a director of Ngai Tahu Holdings. Perhaps this gives substance to the idea mooted by some mutt on this thread that REL and Ngai Tahu could be 'working together', ooops should have said working independently to arrive at a single logical path towards the future!

SNOOPY

[Marilyn Munroe]

... Perhaps this gives substance to the idea mooted by some mutt on this thread that REL and Ngai Tahu could be 'working together'....

SNOOPY

I hope not. Surely the rural sector would have learnt a lesson from the forming of a secret concert party to mount an illegal takeover of Richmond Meat by PPCS(now Silver Fern Farms) and the subsequent punishment handed out by the courts.

Boop boop de do
Marilyn

[percy]

Some times the road to no where does leed to somewhere.
I note the market cap of Rural Equities is $153.5 mil.
PGW's current market cap is $384.9 mil.
Will PGW's market cap be over or under $200 mil once the seeds business is sold and capital returned to shareholders?
Perhaps it would then make sense to merge PGW with REL.?

[Snoopy]

Some times the road to no where does lead to somewhere.
I note the market cap of Rural Equities is $153.5 mil.
PGW's current market cap is $384.9 mil.
Will PGW's market cap be over or under $200 mil once the seeds business is sold and capital returned to shareholders?

The market has not viewed the seed division sale favourably, as the share price has fallen since the seed division sale came to the table. But it may recover a bit when the details of any capital repayment come to light. Initially I would say a market valuation of 'PGW Rural Rump' of around $200m would be a good guess.

Perhaps it would then make sense to merge PGW with REL.?

They would be similar in size in market capitalisation terms. Combining the two might see a 'PGW Rural Equities Rump' getting close to a size that means a return to the NZX50 becomes possible. But I am not sure if merging a 'farming services supplier' with a 'farm owner' would be rurally acceptable. Farming customers might get titchy about buying from a company that is a competing farm owner?

Then again I thought the same about Turners moving into the retail car market, and how that would alienate their wholesale auction customers. Effectively wholesale car customers would only get sold the reject cars that Turners did not want to sell themselves! Nevertheless the Turners transition to becoming a retail seller seems to be a success.

SNOOPY

[percy]

I can not comment on Sarah Brown,however both Rodger Finlay and David Cushing are very welcome .
Both have a wealth of experience and are very astute.
I seem to remember PGW are REL's farm manager.
I think once the seeds business sale receives the all clear, PGW's share price will do a runner.

[Snoopy]

I can not comment on Sarah Brown,however both Rodger Finlay and David Cushing are very welcome .
Both have a wealth of experience and are very astute.

Sarah Brown is a 'proud Southlander' Percy. A real southern 'soul of the soil'. There can be no greater qualification to sit on the PGW board than that. (Plus I have heard through the grape vine, she makes a cracking cup of tea ;-P)

I seem to remember PGW are REL's farm manager.

I didn't know that. But aren't most of REL's farms in Tasmania? Where does PGWs expertise dovetail into that? Or are REL just plugging into PGW's extensive head office skills for processing their results?

I think once the seeds business sale receives the all clear, PGW's share price will do a runner.

Since the seed division sale was announced (and since the PGW share price came down as a result) I have boosted my PGW holding by 50%. So I have money on you being right. Just as long as PGW remembers in which direction to run!

SNOOPY